Building Resilience

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Building Resilience

Building Resilience

Building and maintaining resilience to a panoply of new and evolving environmental and climate risks is going to be essential in the short, medium and long-term.

The insurance industry can play an essential role in supporting the transition to a more sustainable future through its underwriting, investment policies and the development of new products and approaches which facilitate investment and support innovation.

Parametric payouts

Last year, the World Economic Forum identified parametric insurance solutions - a type of insurance that provides payouts based on the occurrence of a specific event, rather than the actual loss incurred - as a tool in the drive towards creating better disaster aid solution18. As the data and modelling that underpins parametric covers improves and comfort grows with this risk transfer mechanism the benefits become clear – particularly the speed of payment - with funds being disbursed swiftly to facilitate recovery. As the triggers for parametric payouts are clear, there is a reduction in the risk of disputes. Parametric insurance can also cover broader economic impacts often excluded from traditional policies, such as the loss of tourism revenue following a natural disaster.

The benefits of being sustainable

Embracing sustainability is no longer merely a moral choice but a strategic one, offering numerous benefits. A sustainable business can enhance its brand value, attracting customers and employees who prioritise environmental responsibility. Access to capital can be enhanced by strong environmental credentials. Moreover, by preparing for future risks, sustainable businesses are more resilient to regulatory changes and market shifts.

Shouldering the risks

Reputation risk is amplified in the digital age, where environmental incidents can quickly escalate into public relations crises. Directors and Officers may face liability for not adequately addressing climate risks. Property and liability cover must adapt to include assets increasingly vulnerable to climate events. Business interruption insurance becomes crucial when extreme weather disrupts operations, exemplified by the impact of Hurricane Sandy on businesses in New York. Supply chain risks are heightened by climate change, with raw material scarcities and transportation disruptions.

By offering innovative solutions such as parametric insurance and carbon capture insurance, and by supporting sustainable business practices, the insurance industry plays a crucial role in helping firms navigate the complex risks created by changing weather patterns.

As new sustainable energy solutions emerge, the insurance industry can leverage data to develop new insurance and risk mitigation solutions that mitigate financial liabilities for businesses and reassure investors, assisting the journey to a more sustainable future.